Free Apps Bring The Gold In 2011

Every time I play a move on Words With Friends or tag a song with Shazam, I'm forever confronted with an ad somewhere in the process. I see an add, it gets tallied, and somewhere somebody earns a few more cents. Lately, it's had me thinking a lot about the economics of this model and how free apps that display advertisements compare to ad-free paid apps. In the case of Words With Friends, I can have the app for free but I see an ad literally after ever play I make. Alternately, I can pay 99 cents and never see an ad again. I have no idea how much Zynga, the developer of Words With Friends, makes off of every ad I see but I play a startlingly high volume of matches on Words With Friends so those ad views I'm constantly bombarded with during every round has to sum up to something, right?

Right.

According to Distimo, who has monitored app trends since the first app store opened, free apps were responsible half of the revenue of the top 200 grossing apps in Apple's App Store. In Google's Android Market, free apps generated 65% of the total revenue grossed in 2011. In their report, they hail the free app model as "one of the most important monetization strategies for developers." One reason that the free apps are adding so much weight to the wallets of developers is how free apps proliferated in the past year, as the following graph depicts:

Another part of the financial success of free apps is credited to the increase of in-app purchases in 2011, also known as freemium apps. It works like this: download the free app, test drive it, find out you like it, and then buy some of the offers within the app to unlock features. As an example, Words With Friends now offers an in-app purchase that lets you see how many unused tiles of each letter remain in your game. Again, this business model grew throughout 2011:

So this brings me to my original speculation as to whether it's more profitable for developers if I make a one-time purchase of ad-free apps or if they make more money off of me by filling my eye-space with their ads. At least as far as the Android Market goes, Distimo argues that "it is quite hard for Android developers to monetize using the one-off fee paid monetization model. This graph shows that it might be wise to switch to a freemium model if you are a developer for the US market."

If I had to guess, I'd say Zynga made a mint off of the number of ads I've had to see and skip through in order to satisfy my Words With Friends addiction. At least I no longer have to feel bad about being too cheap to only download the free version of apps since, while they simultaneously colonize my mind with advertisements, they're also making a ton of money off of me.